Why should an Arkansas LLC have an operating agreement?

An Arkansas LLC should have an operating agreement because a company cannot act for itself. In order to operate, LLCs require real humans (and other entities) to carry out company operations.

While Arkansas Code § 4-38-105 to 107 describes what an operating agreement can and can’t do, it doesn’t say the state requires one. But don’t be fooled, your operating agreement is one of your most important internal documents.

1. Your operating agreement proves you own your LLC.

While your Arkansas Articles of Organization require you to include the name of one member, that means only one person can use your articles of organization as proof of ownership. Your operating agreement, however, includes the names of all members. And because it’s a legal document, it can be used by all members as proof of ownership. You’ll need it to open a business bank account.

2. An operating agreement can help reinforce your limited liability status.

To benefit from limited liability, all business owners must follow certain formalities to show that their company is its own legal entity separate from its members. One way to do this is to open a bank account for your LLC. Another is to create (and follow) an operating agreement.

3. An operating agreement can help prevent misunderstandings.

Disagreements happen. Misunderstandings are almost inevitable. But with an operating agreement to establish agreed-upon rules and procedures for your LLC, you can help prevent those misunderstandings from slowing (or stopping) your business.

4. An operating agreement can override Arkansas’s default laws.

If you don’t have an operating agreement, Arkansas’s state statutes will automatically set the rules and procedures for your business. The problem is that these default statutes might not work for your LLC. By creating an operating agreement for your LLC, you ensure that your business operations reflect the needs of your company.

Arkansas Case Law

We asked our lawyers for an example of how an operating agreement can make or break your LLC. Here’s what they said.*

“Consider the case of Vicentic v Simpson, where one member claimed to be the sole member of an LLC, despite listing a second member as part of the LLC in license and permitting applications along with other documents. The member claiming to be the sole member conceded that the second member was initially part of the LLC, but was later removed as a member. Given this admission, among other things, the courts ruled that no operating existed for the LLC since the operating agreement was never presented to the second initial member.

“Assuming good faith on all parties, this case represents an excellent example of why it is important for business owners to understand the areas through which they traverse and why it is important to present the LLC rulebook to all LLC members. Had the members actually discussed the parameters and circumstances surrounding the LLC governance, the original misunderstanding would likely have been avoided and valuable resources could have been preserved for more fulfilling purposes. For these reasons (and more), a reasonably prudent business owner would (and should) actually adopt and maintain an operating agreement.”